The document discusses the Reserve Bank of India (RBI), which is India's central bank. It was established in 1935 and is headquartered in Mumbai. The RBI regulates monetary policy, controls the country's money supply and foreign exchange, acts as a bank for the government and other banks, and oversees the banking system. It uses various tools like interest rates, cash reserve ratios, and open market operations to influence monetary policy and inflation. The RBI also facilitates foreign trade and manages foreign exchange reserves.

1. RBI AND ITS MONETARY
POLICY

2. INTRODUCTION
 It is the Central Bank of
India Established in “1st April
1935” under the “RESERVE
BANK OF INDIA ACT”.
Its head quarter is in
Mumbai (Maharashtra). Its
present governor is “
Shaktikanta Das”.

3. History of RBI
 1935–1950
The bank was founded in 1935 to respond to economic troubles
after the First World War. The Preamble of the Reserve Bank of
India describes the basic functions of the Reserve Bank as to
regulate the issue of bank notes, to keep reserves with a view to
securing monetary stability in India and generally to operate the
currency and credit system in the best interests of the country.
The Central Office of the Reserve Bank was initially established
in Kolkata, Bengal, but was permanently moved to Mumbai in
1937.
 1960–1969
As a result of bank crashes, the reserve bank was requested to
establish and monitor a deposit insurance system. It should
restore the trust in the national bank system and was initialized
on 7 December 1961.

4.  1969–1985
Between 1969 and 1980, the Indian government nationalized 6
more commercial banks; following 14 major commercial banks
being nationalized in 1969 . The branch was forced to establish
two new offices in the country for every newly established office
in a town. The oil crises in 1973 resulted in increasing inflation,
and the RBI restricted monetary policy to reduce the effects.
 1985–1991
A lot of committees analyzed the Indian economy between 1985
and 1991. Their results had an effect on the RBI.

5.  1991–2000
The national economy came down in July 1991 and the Indian rupee was
devalued. The currency lost 18% relative to the US, and
the Narsimahmam Committee advised restructuring the financial sector
by a temporal reduced reserve ratio as well as the statutory liquidity ratio.
published in 1993 to establish a private banking sector. This turning point
should reinforce the market and was often called liberal. The central bank
deregulated bank interests and some sectors of the financial market like
the trust and property markets.
 Since 2000
The Foreign Exchange Management Act from 1999 came into force in June
2000. It should improve the foreign exchange market, international
investments in India and transactions. The RBI promoted the
development of the financial market in the last years, allowed online
banking in 2001 and established a new payment system in 2004–2005

6. PREAMBLE :-
The Preamble of the Reserve Bank of India describes
the basic functions of the Reserve Bank as :-
“…To regulate the issue of Bank Notes and keeping of reserves
with a view to securing monetary stability in India and
generally to operate the currency and credit system of the
country to its advantage."

7. FUNCTIONS OF RBI
 Issue of currency
 Development role
 Banker to government
 Banker to bank
 Role of RBI in inflation control
 Formulate monetary policy
 Manager of foreign reserve
 Clearing house functions
 Regulations of banking system

8. Issue of Currency
 To ensure adequate quantity of supplies of currency notes and
coins of good quality.
Issues new currency and destroys currency and coins not fit for
circulation.
It has to keep in forms of gold and foreign securities as per
statutory rules against notes & coins issued.
Developmental Role
 To develop the quality of banking system in India.
Performs a wide range of promotional functions to support
national objectives.
To establish financial institutions of national importance, for e.g:
NABARD,IDBI etc.

9. Banker to the Government:
Performs all banking function for the central and the state
governments and also acts as their banker excepting that of
Jammu and Kashmir. It makes loans and advances to the States
and local authorities. It acts as adviser to the Government on all
monetary and banking matters.

10. Banker to banks:
 Maintains banking accounts of all scheduled banks.
RBI also regulates the opening /installation of ATM Fresh
currency notes for ATMs are supplied by RBI.
RBI regulates the opening of branches by banks.
It ensures that all the N.B.F.S follow the Know Your
Customer guidelines.

11. The Reserve Bank of India also regulates the trade of gold.
Currently 17 Indian banks are involved in the trade of gold in
India.
RBI has invited applications from more banks for direct import
of gold to curb illegal trade in gold and increase competition in
the market.
Collection and publication of data.
It issues guidelines and directives for the commercial banks.

12. Role of RBI in inflation
control
 Inflation arises when the demand increases and there is a shortage
of supply There are two policies in the hands of the RBI.
 Monetary Policy: It includes the interest rates. When the bank
increases the interest rates than there is reduction in the
borrowers and people try to save more as the rate of interest has
increased.
 Fiscal Policy: It is related to direct taxes and government spending.
When direct taxes increased and government spending increased
than the disposable Income of the people reduces and hence the
demand reduces.

13. Formulate monetary policy
 Maintain price stability and ensuring adequate flow of credit
in the economy.
It formulates implements and monitors the monetary policy.
Instruments: qualitative & quantitative.

14. Quantitative Measures
Quantitative Measures “BANK RATE” also called “Discount
Rate”.
It also includes “Repo Rate”.
“Open Market Operations” buying and selling of government
securities.
“Variable Reserve Ratio” it includes C.R.R and S.L.R
Qualitative Measures
1. Direct Action
2. Moral persuasion
3. Legislation
4. Publicity

15. BANK RATE
 It’s the interest rate that is charged by a country’s central
bank on loans and advances to control money supply in the
economy and the banking sector.
This is typically done on a quarterly basis to control inflation
and stabilize the country’s exchange rates.
A fluctuation in bank rates Triggers a Ripple-Effect as it
impacts every sector of a country’s economy.
A change in bank rates affects customers as it influences
Prime Interest Rates for personal loans.
The present bank rate is 9%

16. REPO RATE
Whenever the banks have any shortage of funds they can
borrow it from the central bank. Repo rate is the rate at which
our banks borrow currency from the central bank.
 A reduction in the repo rate will help banks to get Money at a
cheaper rate.
When the repo rate increases borrowing from the central
bank becomes more expensive.
In order to increse the liquidity in the market, the central
bank does it.
The present repo rate is 8%

17. REVERSE REPO RATE
 It’s the rate at which the banks park surplus funds with reserve
bank.
While the Repo rate is the rate at which the banks borrow from
the central bank.
It is mostly done , when there is surplus liquidity in the market
by the central bank.
The present reverse repo rate is 7%

18. • Cash Reserve Ratio (CRR) is the amount of Cash(liquid cash like
gold)that the banks have to keep with RBI.
•This Ratio is basically to secure solvency of the bank and to drain
out the excessive money from the banks.
•The present CRR rate is 4%.
CRR (Cash Reserve Ratio)

19. SLR ( Statutory Liquidity
Ratio)
•It is the amount a commercial bank needs to maintain in the
form of cash, or gold or govt. approved securities (Bonds)
before providing credit to its customers.
•SLR rate is determined and maintained by the RBI (Reserve
Bank of India) in order to control the expansion of bank credit.
•The present SLR rate is 23%.

20. Current bank rates
 Bank Rate 5.15%
 Repo Rate 6.5%
 Reverse Repo Rate 3.35%
 Cash Reserve Ratio (CRR) 4.5%
 Statutory Liquidity Ratio (SLR) 18.0%
 Marginal Standing Facility Rate(MSF) 6.75%
 Base Rate. 8.65% to 9.40%.
 Saving Deposit Rate. 2.70% to 3.00%.
 Term Deposit Rate. 6.00% to 7.25%

21. QUALITATIVE MEASURES
1. Direct Action: The central bank may take direct action against
commercial banks that violate the rules, orders or advice of the
central bank. This punishment is very severe of a commercial
bank.
2. Moral persuasion: It is another method by which central bank
may get credit supply expanded or contracted. By moral pressure
it may prohibit or dissuade commercial banks to deal in
speculative business.

22.  3. Legislation:
The central bank may also adopt necessary legislation for
expanding or contracting credit money in the market.
 4. Publicity:
The central bank may resort to massive advertising campaign
in the news papers, magazines and journals depicting the
poor economic conditions of the country suggesting
commercial banks and other financial institutions to control
credit either by expansion or by contraction.

23. Manager of Foreign Exchange
To facilitate external trade and payment and promote orderly
development and maintenance of foreign exchange market in
India.
It acts as a custodian and Manages the Foreign Exchange
Management Act,(FEMA) 1999.
 RBI buys and sells foreign currency to maintain the exchange
rate of Indian Rupee v/s foreign currencies like the US Dollar,
Euro, Pound and Japanese yen.

24. Clearing House Functions
 The RBI operates
clearing houses to
settle banking
transactions. The
RBI manages 14
major clearing
houses of the
country situated in
different major
cities. The State
Bank of India and its
associates look after
clearing houses
function in other
parts of the country
as an agent of RBI.

25. :
Regulation of Banking System
The prime duty of the reserve Bank is to regulate the banking
system of our country in such a way that the people of the
country can trust in the banking Up to perform its duty.
The Reserve Bank has following powers in this regard:
•Licensing:
According to the section 22 of the Banking Regulation Act,
every bank has to obtain license from the Reserve Bank. The
Reserve Bank issues such license only to those banks which
fulfill condition of the bank.

26.  Management:
Section 10 of the Banking Regulation Act embowered the
Reserve Bank to change manager or director of any bank if it
considers it necessary or desirable.
 Branch Expansion:
Section 23 requires every bank to take prior permission from
Reserve Bank to open new places of business in India.
 Power of inspection of Bank:
Under Section 35, the Reserve Bank may inspect any bank and
its books and accounts either at its own initiative or at the
instance of the Central Government.